Question 1

Figure 14-4
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Accepted Answer

A)   decreases its fixed costs.
B)   should produce Q1 units of output.
C)   should produce Q3 units of output.
D)   should shut down immediately.E) A) and D)
F) A) and C)

Question 2

Suppose that a competitive market is initially in equilibrium. Then demand increases. If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

Accepted Answer

A)   the long-run market supply curve will be upward sloping.
B)   the long-run market supply curve will be perfectly elastic.
C)   in the long run firms will suffer economic losses, leading them to exit the industry.
D)   the number of firms will decrease, and the market will become a monopoly.E) None of the above
F) B) and C)

Question 3

Which of the following industries is most likely to exhibit the characteristic of free entry?

Accepted Answer

A)   electricity
B)   satellite radio
C)   mineral mining
D)   tennis shoesE) All of the above
F) B) and C)

Question 4

Which of the following statements is correct?

Accepted Answer

A)   For all firms, marginal revenue equals the price of the good.
B)   Only for competitive firms does average revenue equal the price of the good.
C)   Marginal revenue can be calculated as total revenue divided by the quantity sold.
D)   Only for competitive firms does average revenue equal marginal revenue.E) A) and B)
F) A) and C)

Question 5

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,

Accepted Answer

A)   the long-run market supply curve will be upward sloping.
B)   the long-run market supply curve will be perfectly elastic.
C)   in the long run firms will suffer economic losses, leading them to exit the industry.
D)   the number of firms will decrease, and the market will become a monopoly.E) A) and B)
F) C) and D)

Question 6

Figure 14-10
In the figure below, panel a)  depicts the linear marginal cost of a firm in a competitive market, and panel b)  depicts the linear market supply curve for a market with a fixed number of identical firms.
 
-Refer to Figure 14-10. If there are 500 identical firms in this market, what is the value of Q1?

Accepted Answer

A)   10,000
B)   20,000
C)   50,000
D)   150,000E) A) and B)
F) C) and D)

Question 7

Table 14-1
 
-Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Accepted Answer

A)   increase by less than $15.
B)   increase by exactly $15.
C)   increase by more than $15.
D)   Total revenue cannot be determined from the information provided.E) None of the above
F) B) and D)

Question 8

The competitive firm's short-run supply curve is its

Accepted Answer

A)   marginal revenue curve, but only the portion where marginal revenue exceeds marginal cost.
B)   marginal cost curve.
C)   marginal cost curve, but only the portion above the minimum of average total cost.
D)   marginal cost curve, but only the portion above the minimum of average variable cost.E) B) and D)
F) None of the above

Question 9

A restaurant that has market power can

Accepted Answer

A)   minimize costs more efficiently than its competitors.
B)   influence the market price for the meals it sells.
C)   reduce its marketing budget more than its competitors.
D)   ignore profit-maximizing strategies when setting the price for its meals.E) None of the above
F) C) and D)

Question 10

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Accepted Answer

A)   certain outlays of money by the firm.
B)   implicit costs.
C)   operating costs.
D)   fixed costs.E) A) and D)
F) C) and D)

Question 11

Which of the following industries is least likely to exhibit the characteristic of free entry?

Accepted Answer

A)   bookstores
B)   hairstyling salons
C)   yoga studios
D)   satellite radioE) A) and D)
F) None of the above

Question 12

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Accepted Answer

A) True 
 B)False

Question 13

Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

Accepted Answer

A) True 
 B)False

Question 14

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Accepted Answer

A)   total revenue.
B)   marginal revenue.
C)   average revenue.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 15

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves: 
-Refer to Figure 14-6. Firms will shut down in the short run if the market price

Accepted Answer

A)   exceeds P3.
B)   is less than P1.
C)   is greater than P1 but less than P3.
D)   exceeds P2.E) A) and B)
F) All of the above

Question 16

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price
is less than that firm's average variable cost.

Accepted Answer

A) True 
 B)False

Question 17

Table 14-10
Suppose that a firm in a competitive market faces the following revenues and costs:
 
-Refer to Table 14-10. At which level of production will the firm maximize profit?

Accepted Answer

A)   3 units
B)   4 units
C)   5 units
D)   6 unitsE) All of the above
F) A) and B)

Question 18

For a particular competitive firm, the minimum value of average variable cost AVC)  is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost ATC)  is $15 and is reached when 230 units of output are produced. Which of the following statements is correct?

Accepted Answer

A)   In the short run, the firm will shut down if the price of its product is $11.
B)   In the long run, the firm will shut down if the price of its product is $14.
C)   If the price of its product is $12, then the firm's loss if it produces 200 units of output is the same as its loss if it shuts down.
D)   All of the above are correct.E) B) and D)
F) A) and D)

Question 19

When new firms enter a perfectly competitive market,

Accepted Answer

A)   economic profits of existing firms will continue to be zero.
B)   entering firms will earn zero economic profit upon entry into the market.
C)   existing firms may see their costs rise if more firms compete for limited resources.
D)   prices will rise as existing firms raise prices to keep new firms out of the market.E) A) and B)
F) A) and C)

Question 20

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Accepted Answer

Average revenue is total revenue divided...

Exam 13: Firms in Competitive Markets

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will shut down in the short run if the market price

Correct Answer
verified

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Correct Answer
verified
Average revenue is total revenue divided...
View Answer

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost.

Correct Answer
verified

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Correct Answer
verified

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Correct Answer
verified

Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

Correct Answer
verified

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Correct Answer
verified

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Correct Answer
verified

When new firms enter a perfectly competitive market,

Correct Answer
verified

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of production will the firm maximize profit?

Correct Answer
verified

Which of the following industries is least likely to exhibit the characteristic of free entry?

Correct Answer
verified

Suppose that a competitive market is initially in equilibrium. Then demand increases. If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

Correct Answer
verified

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Correct Answer
verified

A restaurant that has market power can

Correct Answer
verified

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
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Correct Answer
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The competitive firm's short-run supply curve is its

Correct Answer
verified

Which of the following industries is most likely to exhibit the characteristic of free entry?

Correct Answer
verified

Correct Answer
verified

Exam 13: Firms in Competitive Markets

Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-6. Firms will shut down in the short run if the market price

Correct AnswerverifiedShow Answer

Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Correct AnswerverifiedAverage revenue is total revenue divided...View AnswerShow Answer

A firm operating in a perfectly competitive industry will shut down in the short run but earn losses if the market price is less than that firm's average variable cost.

Correct AnswerverifiedShow Answer

Table 14-1 -Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will

Correct AnswerverifiedShow Answer

Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's

Correct AnswerverifiedShow Answer

Suppose a firm is considering producing zero units of output. We call this shutting down in the short run and exiting an industry in the long run.

Correct AnswerverifiedShow Answer

In the short run, if the market price is below the firm's average total cost of production, the firm will always shut down.

Correct AnswerverifiedShow Answer

As a general rule, when accountants calculate profit they account for explicit costs but usually ignore

Correct AnswerverifiedShow Answer

When new firms enter a perfectly competitive market,

Correct AnswerverifiedShow Answer

Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: -Refer to Table 14-10. At which level of production will the firm maximize profit?

Correct AnswerverifiedShow Answer

Which of the following industries is least likely to exhibit the characteristic of free entry?

Correct AnswerverifiedShow Answer

Suppose that a competitive market is initially in equilibrium. Then demand increases. If entering firms face the same costs as existing firms and sufficient resources are available for entering firms,

Correct AnswerverifiedShow Answer

Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: -Refer to Figure 14-4. When price falls from P3 to P1, the firm finds that it

Correct AnswerverifiedShow Answer

A restaurant that has market power can

Correct AnswerverifiedShow Answer

Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The competitive firm's short-run supply curve is its

Correct AnswerverifiedShow Answer

Which of the following industries is most likely to exhibit the characteristic of free entry?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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Average revenue is total revenue divided...
View Answer

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